SEC Filing | The Kraft Heinz Company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

khc-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 001-37482

The Kraft Heinz Company

(Exact name of registrant as specified in its charter)

Delaware

46-2078182

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One PPG Place,

Pittsburgh,

Pennsylvania

15222

(Address of principal executive offices)

(Zip Code)

(412) 456-5700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	KHC	The Nasdaq Stock Market LLC
Floating Rate Senior Notes due 2025	KHC25	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2023, there were 1,226,538,694 shares of the registrant’s common stock outstanding.

Table of Contents


PART I - FINANCIAL INFORMATION			1
Item 1. Financial Statements.			1
Condensed Consolidated Statements of Income			1
Condensed Consolidated Statements of Comprehensive Income			2
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Equity			4
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
Note 1. Basis of Presentation			7
Note 2. Significant Accounting Policies			8
Note 3. New Accounting Standards			8
Note 4. Acquisitions and Divestitures			8
Note 5. Restructuring Activities			11
Note 6. Inventories			12
Note 7. Goodwill and Intangible Assets			12
Note 8. Income Taxes			16
Note 9. Employees’ Stock Incentive Plans			17
Note 10. Postemployment Benefits			17
Note 11. Financial Instruments			19
Note 12. Accumulated Other Comprehensive Income/(Losses)			24
Note 13. Financing Arrangements			26
Note 14. Commitments, Contingencies, and Debt			26
Note 15. Earnings Per Share			29
Note 16. Segment Reporting			29
Note 17. Other Financial Data			31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			32
Overview			32
Consolidated Results of Operations			32
Results of Operations by Segment			37
Liquidity and Capital Resources			40
Commodity Trends			44
Critical Accounting Estimates			44
New Accounting Pronouncements			47
Contingencies			47
Non-GAAP Financial Measures			47
Item 3. Quantitative and Qualitative Disclosures about Market Risk.			52
Item 4. Controls and Procedures.			52
PART II - OTHER INFORMATION			53
Item 1. Legal Proceedings.			53
Item 1A. Risk Factors.			53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			53
Item 5. Other Information.			53
Item 6. Exhibits.			54
Signatures			55

Unless the context otherwise requires, the terms “we,” “us,” “our,” “Kraft Heinz,” and the “Company” each refer to The Kraft Heinz Company and all of its consolidated subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains a number of forward-looking statements. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “will,” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our plans, impacts of accounting standards and guidance, growth, legal matters, taxes, costs and cost savings, impairments, and dividends. These forward-looking statements reflect management’s current expectations and are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond our control.

Important factors that may affect our business and operations and that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, operating in a highly competitive industry; our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation; changes in the retail landscape or the loss of key retail customers; changes in our relationships with significant customers or suppliers, or in other business relationships; our ability to maintain, extend, and expand our reputation and brand image; our ability to leverage our brand value to compete against private label products; our ability to drive revenue growth in our key product categories or platforms, increase our market share, or add products that are in faster-growing and more profitable categories; product recalls or other product liability claims; climate change and legal or regulatory responses; our ability to identify, complete, or realize the benefits from strategic acquisitions, divestitures, alliances, joint ventures, or investments; our ability to successfully execute our strategic initiatives; the impacts of our international operations; our ability to protect intellectual property rights; our ability to realize the anticipated benefits from prior or future streamlining actions to reduce fixed costs, simplify or improve processes, and improve our competitiveness; the influence of our largest stockholder; our level of indebtedness, as well as our ability to comply with covenants under our debt instruments; additional impairments of the carrying amounts of goodwill or other indefinite-lived intangible assets; foreign exchange rate fluctuations; volatility in commodity, energy, and other input costs; volatility in the market value of all or a portion of the commodity derivatives we use; compliance with laws and regulations and related legal claims or regulatory enforcement actions; failure to maintain an effective system of internal controls; a downgrade in our credit rating; the impact of sales of our common stock in the public market; our ability to continue to pay a regular dividend and the amounts of any such dividends; disruptions in the global economy caused by geopolitical conflicts, including the ongoing conflict between Russia and Ukraine; unanticipated business disruptions and natural events in the locations in which we or our customers, suppliers, distributors, or regulators operate; economic and political conditions in the United States and various other nations where we do business (including inflationary pressures, instability in financial institutions, general economic slowdown, recession, or a potential U.S. federal government shutdown); changes in our management team or other key personnel and our ability to hire or retain key personnel or a highly skilled and diverse global workforce; our dependence on information technology and systems, including service interruptions, misappropriation of data, or breaches of security; increased pension, labor, and people-related expenses; changes in tax laws and interpretations and the final determination of tax audits, including transfer pricing matters, and any related litigation; volatility of capital markets and other macroeconomic factors; and other factors. For additional information on these and other factors that could affect our forward-looking statements, see Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2022. We disclaim and do not undertake any obligation to update, revise, or withdraw any forward-looking statement in this report, except as required by applicable law or regulation.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Income

(in millions, except per share data)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net sales	$	6,570	$	6,505	$	19,780	$	19,104
Cost of products sold	4,335		4,662		13,171		13,346
Gross profit	2,235		1,843		6,609		5,758
Selling, general and administrative expenses, excluding impairment losses	920		798		2,675		2,437
Goodwill impairment losses	510		220		510		444
Intangible asset impairment losses	152		74		152		469
Selling, general and administrative expenses	1,582		1,092		3,337		3,350
Operating income/(loss)	653		751		3,272		2,408
Interest expense	228		228		683		704
Other expense/(income)	(35)		(22)		(94)		(211)
Income/(loss) before income taxes	460		545		2,683		1,915
Provision for/(benefit from) income taxes	206		110		594		434
Net income/(loss)	254		435		2,089		1,481
Net income/(loss) attributable to noncontrolling interest	(8)		3		(9)		8
Net income/(loss) attributable to common shareholders	$	262	$	432	$	2,098	$	1,473
Per share data applicable to common shareholders:
Basic earnings/(loss)	$	0.21	$	0.35	$	1.71	$	1.20
Diluted earnings/(loss)	0.21		0.35		1.70		1.19

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net income/(loss)	$	254	$	435	$	2,089	$	1,481
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments	(355)		(816)		(61)		(1,500)
Net deferred gains/(losses) on net investment hedges	92		324		17		581
Amounts excluded from the effectiveness assessment of net investment hedges	7		8		21		26
Net deferred losses/(gains) on net investment hedges reclassified to net income/(loss)	(8)		(10)		(21)		(23)
Net deferred gains/(losses) on cash flow hedges	14		(29)		5		(101)
Amounts excluded from the effectiveness assessment of cash flow hedges	3		1		13		9
Net deferred losses/(gains) on cash flow hedges reclassified to net income/(loss)	13		48		(18)		97
Net actuarial gains/(losses) arising during the period	—		(117)		—		(260)
Net postemployment benefit losses/(gains) reclassified to net income/(loss)	(1)		(4)		(8)		(15)
Total other comprehensive income/(loss)	(235)		(595)		(52)		(1,186)
Total comprehensive income/(loss)	19		(160)		2,037		295
Comprehensive income/(loss) attributable to noncontrolling interest	(11)		2		(8)		2
Comprehensive income/(loss) attributable to common shareholders	$	30	$	(162)	$	2,045	$	293

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Balance Sheets

(in millions, except per share data)

(Unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	1,052	$	1,040
Trade receivables (net of allowances of $43 at September 30, 2023 and $46 at December 31, 2022)	2,103		2,120
Inventories	3,779		3,651
Prepaid expenses	245		240
Other current assets	654		842
Assets held for sale	5		4
Total current assets	7,838		7,897
Property, plant and equipment, net	6,813		6,740
Goodwill	30,310		30,833
Intangible assets, net	42,314		42,649
Other non-current assets	2,381		2,394
TOTAL ASSETS	$	89,656	$	90,513
LIABILITIES AND EQUITY
Commercial paper and other short-term debt	$	—	$	6
Current portion of long-term debt	608		831
Trade payables	4,463		4,848
Accrued marketing	793		749
Interest payable	268		264

Other current liabilities	1,672		2,330

Total current liabilities	7,804		9,028
Long-term debt	19,270		19,233
Deferred income taxes	10,132		10,152
Accrued postemployment costs	143		144
Long-term deferred income	1,436		1,477
Other non-current liabilities	1,413		1,609
TOTAL LIABILITIES	40,198		41,643
Commitments and Contingencies (Note 14)
Redeemable noncontrolling interest	24		40
Equity:
Common stock, $0.01 par value (5,000 shares authorized; 1,249 shares issued and 1,227 shares outstanding at September 30, 2023; 1,243 shares issued and 1,225 shares outstanding at December 31, 2022)	12		12
Additional paid-in capital	52,004		51,834
Retained earnings/(deficit)	1,104		489
Accumulated other comprehensive income/(losses)	(2,863)		(2,810)
Treasury stock, at cost (23 shares at September 30, 2023 and 18 shares at December 31, 2022)	(981)		(847)
Total shareholders' equity	49,276		48,678
Noncontrolling interest	158		152
TOTAL EQUITY	49,434		48,830
TOTAL LIABILITIES AND EQUITY	$	89,656	$	90,513

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Equity

(in millions)

(Unaudited)


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 31, 2022	$	12	$	51,834	$	489	$	(2,810)	$	(847)	$	152	$	48,830
Net income/(loss) excluding redeemable noncontrolling interest	—		—		836		—		—		1		837
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		62		—		4		66
Dividends declared-common stock ($0.40 per share)	—		—		(494)		—		—		—		(494)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		76		—		—		(5)		3		74
Balance at April 1, 2023	$	12	$	51,910	$	831	$	(2,748)	$	(852)	$	160	$	49,313
Net income/(loss) excluding redeemable noncontrolling interest	—		—		1,000		—		—		—		1,000
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		117		—		—		117
Dividends declared-common stock ($0.40 per share)	—		—		(495)		—		—		—		(495)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		57		—		—		(18)		—		39
Balance at July 1, 2023	$	12	$	51,967	$	1,336	$	(2,631)	$	(870)	$	160	$	49,974
Net income/(loss) excluding redeemable noncontrolling interest	—		—		262		—		—		(2)		260
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		(232)		—		(3)		(235)
Dividends declared-common stock ($0.40 per share)	—		—		(494)		—		—		—		(494)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		37		—		—		(111)		3		(71)
Balance at September 30, 2023	$	12	$	52,004	$	1,104	$	(2,863)	$	(981)	$	158	$	49,434


	Common Stock		Additional Paid-in Capital		Retained Earnings/(Deficit)		Accumulated Other Comprehensive Income/(Losses)		Treasury Stock, at Cost		Noncontrolling Interest		Total Equity
Balance at December 25, 2021	$	12	$	53,379	$	(1,682)	$	(1,824)	$	(587)	$	150	$	49,448
Net income/(loss) excluding redeemable noncontrolling interest	—		—		776		—		—		4		780
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		12		—		(1)		11
Dividends declared-common stock ($0.40 per share)	—		(492)		—		—		—		—		(492)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		67		1		—		(18)		—		50
Balance at March 26, 2022	$	12	$	52,954	$	(905)	$	(1,812)	$	(605)	$	153	$	49,797
Net income/(loss) excluding redeemable noncontrolling interest	—		—		265		—		—		2		267
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		(598)		—		(4)		(602)
Dividends declared-common stock ($0.40 per share)	—		(494)		—		—		—		—		(494)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		60		—		—		(81)		15		(6)
Balance at June 25, 2022	$	12	$	52,520	$	(640)	$	(2,410)	$	(686)	$	166	$	48,962
Net income/(loss) excluding redeemable noncontrolling interest	—		—		432		—		—		4		436
Other comprehensive income/(loss) excluding redeemable noncontrolling interest	—		—		—		(594)		—		(1)		(595)
Dividends declared-common stock ($0.40 per share)	—		(494)		—		—		—		—		(494)
Exercise of stock options, issuance of other stock awards, repurchase of common stock, and other	—		51		—		—		(43)		(11)		(3)
Balance at September 24, 2022	$	12	$	52,077	$	(208)	$	(3,004)	$	(729)	$	158	$	48,306

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Condensed Consolidated Statements of Cash Flows

(in millions)

(Unaudited)


	For the Nine Months Ended
	September 30, 2023		September 24, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	2,089	$	1,481
Adjustments to reconcile net income/(loss) to operating cash flows:
Depreciation and amortization	710		685
Amortization of postemployment benefit plans prior service costs/(credits)	(10)		(11)
Divestiture-related license income	(41)		(41)
Equity award compensation expense	110		107
Deferred income tax provision/(benefit)	(15)		(184)
Postemployment benefit plan contributions	(18)		(14)
Goodwill and intangible asset impairment losses	662		913
Nonmonetary currency devaluation	27		16
Loss/(gain) on sale of business	2		(1)
Loss/(gain) on extinguishment of debt	—		(12)
Other items, net	(44)		6
Changes in current assets and liabilities:
Trade receivables	(16)		(208)
Inventories	(277)		(1,027)
Accounts payable	(221)		299
Other current assets	139		(136)
Other current liabilities	(477)		(356)
Net cash provided by/(used for) operating activities	2,620		1,517
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(779)		(632)
Payments to acquire business, net of cash acquired	—		(481)

Proceeds from sale of business, net of cash disposed and working capital adjustments	—		(20)
Other investing activities, net	41		95
Net cash provided by/(used for) investing activities	(738)		(1,038)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt	(823)		(1,157)
Proceeds from issuance of long-term debt	657		—
Debt prepayment and extinguishment (benefit)/costs	—		(17)


Proceeds from issuance of commercial paper	—		228
Repayments of commercial paper	—		(228)
Dividends paid	(1,474)		(1,470)
Other financing activities, net	(176)		(167)
Net cash provided by/(used for) financing activities	(1,816)		(2,811)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(53)		(116)
Cash, cash equivalents, and restricted cash
Net increase/(decrease)	13		(2,448)
Balance at beginning of period	1,041		3,446
Balance at end of period	$	1,054	$	998

See accompanying notes to the condensed consolidated financial statements.

The Kraft Heinz Company

Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted, in accordance with the rules of the Securities and Exchange Commission (the “SEC”). In management’s opinion, these interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary to fairly state our results for the periods presented.

We operate on a 52- or 53-week fiscal year ending on the last Saturday in December in each calendar year. Unless the context requires otherwise, references to years and quarters contained herein pertain to our fiscal years and fiscal quarters. Our 2023 fiscal year is scheduled to be a 52-week period ending on December 30, 2023, and our 2022 fiscal year was a 53-week period that ended on December 31, 2022.

The condensed consolidated balance sheet data at December 31, 2022 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These statements should be read in conjunction with our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022. The results for interim periods are not necessarily indicative of future or annual results.

Principles of Consolidation

The condensed consolidated financial statements include The Kraft Heinz Company and all of our controlled subsidiaries. All intercompany transactions are eliminated.

Reportable Segments

We manage and report our operating results through two reportable segments defined by geographic region: North America and International.

Following certain organizational changes announced on November 1, 2023, we will be evaluating the potential impact on our reportable segments. We expect that any change to our reportable segments will be effective in early 2024.

Use of Estimates

We prepare our condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make accounting policy elections, estimates, and assumptions that affect the reported amount of assets, liabilities, reserves, and expenses. These accounting policy elections, estimates, and assumptions are based on our best estimates and judgments. We evaluate our policy elections, estimates, and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. We believe these estimates to be reasonable given the current facts available. We adjust our policy elections, estimates, and assumptions when facts and circumstances dictate. Market volatility, including foreign currency exchange rates, increases the uncertainty inherent in our estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from estimates. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our condensed consolidated financial statements.

Reclassifications

We made reclassifications and adjustments to certain previously reported financial information to conform to our current period presentation.

Held for Sale

At September 30, 2023 and December 31, 2022, we classified certain assets as held for sale in our condensed consolidated balance sheet, primarily relating to land use rights across the globe.

Cash, Cash Equivalents, and Restricted Cash

Cash equivalents include term deposits with banks, money market funds, and all highly liquid investments with original maturities of three months or less. The fair value of cash equivalents approximates the carrying amount. Cash and cash equivalents that are legally restricted as to withdrawal or usage are classified in other current assets or other non-current assets, as applicable, on the condensed consolidated balance sheets. At September 30, 2023, we had restricted cash recorded in other current assets of $1 million and in other non-current assets of $1 million. At December 31, 2022, we had restricted cash recorded in other non-current assets of $1 million. Total cash, cash equivalents, and restricted cash was $1,054 million at September 30, 2023 and $1,041 million at December 31, 2022.

Note 2. Significant Accounting Policies

There were no significant changes to our accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Note 3. New Accounting Standards

Accounting Standards Adopted in the Current Year

Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations:

In September 2022, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2022-04 to add disclosure requirements relative to supplier financing programs under ASC 405, Liabilities. The guidance requires entities that maintain supplier financing programs to provide information in their financial statements about their use of supplier finance programs and their effect on the entity’s working capital, liquidity, and cash flows. Specifically, the amendment requires entities to disclose the key terms of their programs, amounts outstanding, balance sheet presentation, and a rollforward of amounts outstanding during the annual period. Only the amount outstanding at the end of the period is required to be disclosed in interim periods. We adopted this ASU when it became effective in the first quarter of our fiscal year 2023, except for the rollforward requirement, which is effective in fiscal year 2024. The adoption of this ASU did not have a significant impact on our financial statements and related disclosures.

Note 4. Acquisitions and Divestitures

Acquisitions

Hemmer Acquisition:

On March 31, 2022 (the “Hemmer Acquisition Date”), we acquired a majority of the outstanding equity interests of Companhia Hemmer Indústria e Comércio (“Hemmer”), a Brazilian food and beverage manufacturing company focused on the condiments and sauces category, from certain third-party shareholders (the “Hemmer Acquisition”).

The Hemmer Acquisition was accounted for under the acquisition method of accounting for business combinations. Total cash consideration related to the Hemmer Acquisition was approximately 1.3 billion Brazilian reais (approximately $279 million at the Hemmer Acquisition Date). A noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, as of the Hemmer Acquisition Date. As of the Hemmer Acquisition Date, we acquired 94% of the outstanding shares of Hemmer. In the third quarter of 2022, we completed the redemption of the remaining outstanding shares and own 100% of the controlling interest in Hemmer.

We entered into foreign exchange derivative contracts to economically hedge the foreign currency exposure related to the cash consideration for the Hemmer Acquisition. See Note 11, Financial Instruments, for additional information.

We utilized fair values at the Hemmer Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Hemmer Acquisition became final during the first quarter of 2023.

The final purchase price allocation to assets acquired and liabilities assumed in the Hemmer Acquisition was (in millions):


	Final Allocation
Cash	$	1
Trade receivables	13
Inventories	17
Other current assets	2
Property, plant and equipment, net	14
Identifiable intangible assets	122
Other non-current assets	17
Short-term debt	(9)
Trade payables	(11)
Other current liabilities	(31)
Long-term debt	(11)
Other non-current liabilities	(44)
Net assets acquired	80
Noncontrolling interest	(16)
Goodwill on acquisition	215
Total consideration	$	279

The Hemmer Acquisition preliminarily resulted in $219 million of non-tax deductible goodwill relating principally to Hemmer’s long-term experience and large presence operating in emerging markets. In the fourth quarter of 2022, a portion of the goodwill became tax deductible following the merger of Hemmer into our existing legal entity structure. This goodwill was assigned to the Latin America (“LATAM”) reporting unit within our International segment. In the fourth quarter of 2022, certain insignificant measurement period adjustments were made to the initial allocation, and the final amount of goodwill was adjusted to $215 million.

The purchase price allocation to identifiable intangible assets acquired in the Hemmer Acquisition was:


	Fair Value (in millions of dollars)		Weighted Average Life (in years)
Definite-lived trademarks	$	101	13
Customer-related assets	21		15
Total	$	122

We valued trademarks using the relief from royalty method and customer-related assets using the distributor method. Some of the more significant assumptions inherent in developing the valuations included the estimated annual net cash flows for each definite-lived intangible asset (including net sales, cost of products sold, selling and marketing costs, and working capital/contributory asset charges), the discount rate that appropriately reflects the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends, as well as other factors. We determined the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated product category growth rates, management’s plans, and market comparables.

We used carrying values as of the Hemmer Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.

Just Spices Acquisition:

On January 18, 2022 (the “Just Spices Acquisition Date”), we acquired 85% of the shares of Just Spices GmbH (“Just Spices”), a German-based company focused on direct-to-consumer sales of premium spice blends, from certain third-party shareholders (the “Just Spices Acquisition”).

The Just Spices Acquisition was accounted for under the acquisition method of accounting for business combinations. Total cash consideration related to the Just Spices Acquisition was approximately 214 million euros (approximately $243 million at the Just Spices Acquisition Date). A noncontrolling interest was recognized at fair value, which was determined to be the noncontrolling interest’s proportionate share of the acquiree’s identifiable net assets, as of the Just Spices Acquisition Date. Under the terms of certain transaction agreements, Just Spices’ other equity holders each have a put option to require us to purchase the remaining equity interests beginning three years after the Just Spices Acquisition Date. If the put option is not exercised, we have a call option to acquire the remaining equity interests of Just Spices. Considering the contractual terms related to the noncontrolling interest, it is classified as redeemable noncontrolling interest on our condensed consolidated balance sheet.

Subsequent to the Just Spices Acquisition, the redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for the net income/(loss) attributable to the noncontrolling interest. In the third quarter of 2023, we completed the redemption of an additional 5% of the outstanding shares and own 90% of the controlling interest in Just Spices as of September 30, 2023.

We utilized fair values at the Just Spices Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for the Just Spices Acquisition was final as of December 31, 2022.

The final purchase price allocation to assets acquired and liabilities assumed in the Just Spices Acquisition was (in millions):


	Final Allocation
Cash	$	2
Trade receivables	4
Inventories	7
Other current assets	9
Property, plant and equipment, net	1
Identifiable intangible assets	172
Other non-current assets	7
Trade payables	(10)
Other current liabilities	(12)
Other non-current liabilities	(54)
Net assets acquired	126
Redeemable noncontrolling interest	(39)
Goodwill on acquisition	156
Total consideration	$	243

The Just Spices Acquisition preliminarily resulted in $167 million of non-tax deductible goodwill relating principally to Just Spices’ social media presence. This goodwill was assigned to the Continental Europe reporting unit within our International segment. In 2022, certain insignificant measurement period adjustments were made to the initial allocation, and the final amount of goodwill was adjusted to $156 million.

The purchase price allocation to identifiable intangible assets acquired in the Just Spices Acquisition was:


	Fair Value (in millions of dollars)		Weighted Average Life (in years)
Definite-lived trademarks	$	72	10
Customer-related assets	100		15
Total	$	172

We used carrying values as of the Just Spices Acquisition Date to value certain current and non-current assets and liabilities, as we determined that they represented the fair value of those items at such date.

Deal Costs:

We incurred insignificant deal costs for the three and nine months ended September 30, 2023 and the three and nine months ended September 24, 2022 related to our acquisitions. We recognized these deal costs in selling, general and administrative expenses (“SG&A”).

Divestitures

Potential Dispositions:

In the first half of 2023, we entered into agreements to sell two separate businesses within our International segment. For the nine months ended September 30, 2023, the two businesses collectively generated an insignificant amount of consolidated net sales and operating income/(loss) and approximately 1% of net sales and an insignificant amount of Segment Adjusted EBITDA for our International segment. As the expected timing for each of these transactions to close continues to be uncertain, the related assets and liabilities remain classified as held and used on the condensed consolidated balance sheet at September 30, 2023. We anticipate the collective pre-tax loss on sale of businesses to be approximately $100 million, of which approximately $60 million relates to the release of accumulated foreign currency translation losses.

Deal Costs:

We incurred insignificant deal costs for the three and nine months ended September 30, 2023 and the three and nine months ended September 24, 2022 related to our divestitures. We recognized these deal costs in SG&A.

Note 5. Restructuring Activities

See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on our restructuring activities.

Restructuring Activities:

We have restructuring programs globally, which are focused primarily on reducing our overall cost structure and streamlining our organizational design. For the nine months ended September 30, 2023, we eliminated approximately 460 positions related to these programs. As of September 30, 2023, we expect to eliminate approximately 300 additional positions during the remainder of 2023, primarily in our International segment. For the three months ended September 30, 2023, restructuring activities resulted in expenses of $45 million and included $2 million of severance and employee benefit costs, $41 million of asset-related costs, $1 million of other implementation costs, and $1 million of other exit costs. For the nine months ended September 30, 2023, restructuring activities resulted in expenses of $27 million and included $2 million of severance and employee benefit costs, $31 million of asset-related costs, a benefit of $7 million in other implementation costs, and $1 million of other exit costs. Restructuring activities resulted in expenses of $7 million for the three months and $37 million for the nine months ended September 24, 2022.

Our net liability balance for restructuring project costs that qualify as exit and disposal costs under U.S. GAAP was (in millions):


	Severance and Employee Benefit Costs		Other Exit Costs		Total
Balance at December 31, 2022	$	28	$	11	$	39
Charges/(credits)	2		1		3
Cash payments	(19)		(3)		(22)
Non-cash utilization	(2)		(1)		(3)
Balance at September 30, 2023	$	9	$	8	$	17

We expect the majority of the liability for severance and employee benefit costs as of September 30, 2023 to be paid by the end of 2023. The liability for other exit costs primarily relates to lease obligations. The cash impact of these obligations will continue for the duration of the lease terms, which expire between 2024 and 2026.

Total Expenses/(Income):

Total expense/(income) related to restructuring activities, by income statement caption, were (in millions):


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Severance and employee benefit costs - Cost of products sold	$	2	$	—	$	7	$	(3)
Severance and employee benefit costs - SG&A	—		—		(7)		12
Severance and employee benefit costs - Other expense/(income)	—		—		2		—
Asset-related costs - Cost of products sold	41		2		32		9
Asset-related costs - SG&A	—		—		(1)		—
Other costs - Cost of products sold	1		3		5		9
Other costs - SG&A	1		3		(11)		11
Other costs - Other expense/(income)	—		(1)		—		(1)
	$	45	$	7	$	27	$	37

We do not include our restructuring activities within Segment Adjusted EBITDA (as defined in Note 16, Segment Reporting). The pre-tax impact of allocating such expenses/(income) to our segments would have been (in millions):


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
North America	$	9	$	4	$	(1)	$	30
International	36		3		41		4
General corporate expenses	—		—		(13)		3
	$	45	$	7	$	27	$	37

Note 6. Inventories

Inventories consisted of the following (in millions):


	September 30, 2023		December 31, 2022
Packaging and ingredients	$	876	$	1,032
Spare parts	221		208
Work in process	357		334
Finished products	2,325		2,077
Inventories	$	3,779	$	3,651

Note 7. Goodwill and Intangible Assets

Goodwill:

Changes in the carrying amount of goodwill, by segment, were (in millions):


	North America		International		Total
Balance at December 31, 2022	$	27,685	$	3,148	$	30,833
Impairment losses	(452)		(58)		(510)




Translation adjustments and other	(2)		(11)		(13)
Balance at September 30, 2023	$	27,231	$	3,079	$	30,310

2023 Year-to-Date Goodwill Impairment Testing

We performed our 2023 annual impairment test as of July 2, 2023, which was the first day of our third quarter of 2023. In performing this test, we incorporated information that was known through the date of filing this Quarterly Report on Form 10-Q. We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. As a result of our 2023 annual impairment test, we recognized a non-cash goodwill impairment loss of approximately $510 million in SG&A, which included a $452 million impairment loss in our Canada and North America Coffee (“CNAC”) reporting unit within our North America segment and a $58 million impairment loss in our Continental Europe reporting unit within our International segment. These impairments were primarily driven by an increase in the discount rate, which was impacted by higher interest rates, a decline in market capitalization, and other market inputs. After these impairments, the goodwill carrying amount of our CNAC reporting unit is approximately $909 million and the goodwill carrying amount of our Continental Europe reporting unit is approximately $958 million.

As of the 2023 annual impairment test, our reporting units with 20% or less fair value over carrying amount had an aggregate goodwill carrying amount of $30.1 billion and included Taste, Meals, and Away From Home (“TMA”), Fresh, Beverages, and Desserts (“FBD”), Northern Europe, Continental Europe, CNAC, and LATAM. Our Asia reporting unit had between 20-50% fair value over carrying amount with an aggregate goodwill carrying amount of $309 million as of the 2023 annual impairment test date.

As of September 30, 2023, and following the goodwill impairments recorded during the third quarter, we maintain 11 reporting units, seven of which comprise our goodwill balance. These seven reporting units had an aggregate goodwill carrying amount of $30.3 billion at September 30, 2023. Accumulated impairment losses to goodwill were $11.8 billion as of September 30, 2023 and $11.3 billion as of December 31, 2022.

2022 Year-to-Date Goodwill Impairment Testing

As previously disclosed, we historically tested our reporting units and brands for impairment annually as of the first day of our second quarter, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount. As discussed in further detail below, we performed an annual test as of March 27, 2022, the first day of our second quarter (the “Q2 2022 Annual Impairment Test”). Beginning in the third quarter of 2022 and for subsequent annual periods, we voluntarily changed the annual impairment assessment date to the first day of our third quarter and performed an additional annual impairment test as of June 26, 2022 (the “Q3 2022 Annual Impairment Test”). See Note 8, Goodwill and Intangible Assets, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information.

In the second quarter of 2022, following the changes to our internal reporting and reportable segments the composition of certain of our reporting units changed and we performed an interim impairment test (or transition test) on the affected reporting units on both a pre- and post-reorganization basis.

We performed our pre-reorganization impairment test as of March 27, 2022, which was the first day of our second quarter of 2022. There were six reporting units affected by the reassignment of assets and liabilities that maintained a goodwill balance as of our pre-reorganization impairment test date. These reporting units were Enhancers, Specialty, and Away From Home (“ESA”); Kids, Snacks, and Beverages (“KSB”); Meal Foundations and Coffee (“MFC”); Puerto Rico; Canada Retail; and Canada Foodservice. One other reporting unit did not have a goodwill balance as of our pre-reorganization impairment test date. As a result of our pre-reorganization impairment test, we recognized a non-cash impairment loss of approximately $235 million in SG&A in our North America segment in the second quarter of 2022. This included a $221 million impairment loss related to our Canada Retail reporting unit and a $14 million impairment loss related to our Puerto Rico reporting unit. The impairment of our Canada Retail reporting unit was primarily driven by an increase in the discount rate, which was impacted by higher interest rates and other market inputs, as well as a revised downward outlook for operating margin. The impairment of our Puerto Rico reporting unit was primarily driven by a revised downward outlook for operating margin. The remaining reporting units tested as part of our pre-reorganization impairment test each had excess fair value over carrying amount as of March 27, 2022.

We performed our post-reorganization impairment test in conjunction with our Q2 2022 Annual Impairment Test and tested the new North America reporting units (TMA, FBD, CNAC, and Other North America) along with the reporting units in our International segment. The new North America reporting units’ goodwill carrying amounts for the post-reorganization and Q2 2022 Annual Impairment Test reflected the pre-reorganization test results, including impairments recorded. We tested our reporting units for impairment as of the first day of our second quarter, which was March 27, 2022 for our Q2 2022 Annual Impairment Test. In performing this test, we incorporated information that was known through the date of filing our Quarterly Report on Form 10-Q for the three months ended June 25, 2022. We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. As a result of our Q2 2022 Annual Impairment Test, we determined that the fair value of each of the reporting units tested was in excess of its carrying amount.

We performed our Q3 2022 Annual Impairment Test as of June 26, 2022, which was the first day of our third quarter of 2022. In performing this test, we incorporated information that was known through the date of filing of our Quarterly Report on Form 10-Q for the period ended September 24, 2022. We utilized the discounted cash flow method under the income approach to estimate the fair value of our reporting units. As a result of our Q3 2022 Annual Impairment Test, we recognized a non-cash impairment loss of approximately $220 million in SG&A in our North America segment related to our CNAC reporting unit. The impairment of our CNAC reporting unit was primarily driven by reduced revenue growth assumptions and negative macroeconomic factors, including increased interest rates and foreign currency exchange rates for the Canadian dollar relative to the U.S. dollar.

See Note 8, Goodwill and Intangible Assets, to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information on these impairment losses.

Additional Goodwill Considerations

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, and other market factors. Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our pricing expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, market capitalization, income tax rates, foreign currency exchange rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our reporting units might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to goodwill impairments.

Our reporting units that were impaired in 2023 and 2022 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, reporting units that have 20% or less excess fair value over carrying amount as of the 2023 annual impairment test have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining reporting unit has more than 20% excess fair value over carrying amount as of the 2023 annual impairment test, this amount is also susceptible to impairments if any assumptions, estimates, or market factors significantly change in the future.

Indefinite-lived intangible assets:

Changes in the carrying amount of indefinite-lived intangible assets, which primarily consisted of trademarks, were (in millions):


Balance at December 31, 2022	$	38,552
Impairment losses	(152)


Transfers to definite-lived intangible assets	(73)
Translation adjustments and other	13
Balance at September 30, 2023	$	38,340

2023 Year-to-Date Indefinite-Lived Intangible Asset Impairment Testing

Our indefinite-lived intangible asset balance primarily consists of a number of individual brands, which had an aggregate carrying amount of $38.3 billion at September 30, 2023.

As a result of our 2023 annual impairment test as of July 2, 2023, we recognized non-cash intangible asset impairment losses of $152 million in SG&A in the third quarter of 2023 related to Maxwell House, Cool Whip, and two other brands. We utilized the relief from royalty method under the income approach to estimate the fair values and recorded non-cash impairment losses of $139 million in our North America segment and $13 million in our International segment, consistent with ownership of the trademarks. The impairment of these four brands was primarily due to an increase in the discount rate, which was impacted by higher interest rates, a decline in market capitalization, and other market inputs, as well as sustained expectations of declining revenue growth in future years, and decreased margin expectations. After these impairments, the aggregate carrying amount of these brands was $942 million.

As of the 2023 annual impairment test, brands with 20% or less fair value over carrying amount had an aggregate carrying amount after impairment of $18.7 billion, brands with between 20-50% fair value over carrying amount had an aggregate carrying amount of $4.2 billion, and brands that had over 50% fair value over carrying amount had an aggregate carrying amount of $15.7 billion.

As part of the 2023 annual impairment test, we reclassified two indefinite-lived intangible assets to definite-lived intangible assets related to trademarks in our International segment that had a history of impairment and limited capital investment. After the fair value assessment of these brands as part of the 2023 annual impairment test, we transferred $73 million from indefinite-lived intangible assets to definite-lived trademarks as of July 2, 2023 and recognized three months of amortization expense as of September 30, 2023.

2022 Year-to-Date Indefinite-Lived Intangible Asset Impairment Testing

As a result of our Q2 2022 Annual Impairment Test, we recognized a non-cash impairment loss of $395 million in SG&A in our North America segment in the second quarter of 2022 related to four brands, Maxwell House, Miracle Whip, Jet Puffed, and Classico. The impairments of the Maxwell House, Jet Puffed, and Classico brands were primarily due to downward revisions in expected future operating margins as well as an increase in the discount rate, which was impacted by higher interest rates and other market inputs. The impairment of the Miracle Whip brand was primarily due to an increase in the discount rate as well as downward revisions in expected future operating margins due to changes in expectations for commodity input costs, including soybean oil.

As a result of our Q3 2022 Annual Impairment Test we recognized a non-cash impairment loss of $67 million in SG&A in the third quarter of 2022 related to two brands, Jet Puffed and Plasmon. We utilized the relief from royalty method under the income approach to estimate the fair values and recorded non-cash impairment losses of $50 million in our North America segment and $17 million in our International segment, consistent with ownership of the trademarks. The impairment of these brands was primarily due to reduced revenue growth assumptions.

Additional Indefinite-Lived Intangible Asset Considerations

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors. Estimating the fair value of individual brands requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions. These assumptions and estimates include estimated future annual net cash flows, income tax considerations, discount rates, growth rates, royalty rates, contributory asset charges, and other market factors. Our current expectations also include certain assumptions that could be negatively impacted if we are unable to meet our pricing expectations in relation to inflation. If current expectations of future growth rates and margins are not met, if market factors outside of our control, such as discount rates, market capitalization, income tax rates, foreign currency exchange rates, or inflation, change, or if management’s expectations or plans otherwise change, including updates to our long-term operating plans, then one or more of our brands might become impaired in the future. Additionally, any decisions to divest certain non-strategic assets has led and could in the future lead to intangible asset impairments.

Our brands that were impaired in 2023 and 2022 were written down to their respective fair values resulting in zero excess fair value over carrying amount as of the applicable impairment test dates. Accordingly, these and other individual brands that have 20% or less excess fair value over carrying amount as of the 2023 annual impairment test have a heightened risk of future impairments if any assumptions, estimates, or market factors change in the future. Although the remaining brands have more than 20% excess fair value over carrying amount as of the 2023 annual impairment test, these amounts are also susceptible to impairments if any assumptions, estimates, or market factors significantly change in the future.

Definite-lived intangible assets:

Definite-lived intangible assets were (in millions):


	September 30, 2023						December 31, 2022
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Trademarks	$	2,285	$	(721)	$	1,564	$	2,223	$	(649)	$	1,574
Customer-related assets	3,682		(1,281)